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Republic of Congo: Risk Assessment

Country Risk Rating

C

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.

Business Climate Rating

D

The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.

Weaknesses

Risk of political instability in the event of a sudden departure of the Head of State

Current Trends

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GDP growth rate linked to oil production

Growth slowed sharply in 2015 chiefly as a result of the decline in oil production, which was due to delays in the start of production at new oil fields. In 2016, the expected upturn in oil production should help boost activity. This recovery, however, could be limited by the continued slowdown in China (the country’s leading customer). As in 2015, the non-oil sector should grow at a slower rate due to lower public expenditure and the postponing of mining projects because of low iron ore prices.

Congo is rich in natural resources (from oil and iron ore to potash, phosphates and wood) and is strategically located in Central Africa, with a deep-water port in Pointe-Noire. The economy, however, remains dominated by oil, which still accounted for 54% of GDP, 70% of budget revenues and 85% of exports of goods in 2014. Despite this wealth, poverty and inequality remain high. In addition, despite recent discoveries, oil production is set to decline again after 2018, underlining the vital necessity for the country to diversify its economy. With this in mind and to remedy the lack of infrastructure, the government has been implementing a major public investment program over recent years that includes the creation of special zones. This plan has yet to bear full fruit, however, and the business climate remains very difficult. In 2016, the effects of the global drop in food prices would lessen. Inflation is thus expected to move upwards but it will still remain below the objective set by the CEMAC (3%).

The oil shock hits public and external accounts

The reduction in oil prices, begun mid-2014, and the decline in oil production in 2015, resulted in a worsening in the current account balance and hit the budget. This obliged the government to adopt corrective fiscal measures (downwards review of oil prices, ceilings on certain current expenditure and reduced self-financed capital spending). In 2016, the start of production at new oil fields, even without any significant rise in the price per barrel, should help improve the public and external accounts.

The repatriation of government deposits held in China and commercial bank’ deposits held abroad, as well as the loans from the Bank of Central African States (BEAC) in 2014 helped strengthen Congo’s international reserves and maintain the level of government deposits with BEAC. These buffers were then able to be used to deal with the decline in oil revenues. Mainly because of drawing on loans from China, external public debt has increased significantly since the debt relief granted under the HIPC/MDRI initiatives in 2010. The danger of over indebtedness has therefore increased. However, thanks to the size of the government deposits at the regional central bank, this risk can be considered as only being moderate. It could, however, get more serious if, in the future, the government does not favor the use of concessional loans to cover its financing needs.

President Sassou Nguesso retains his grip on power

The Head of State and the Congolese Labour Party continue to keep firm hold of the reins of power. The Presidential camp confirmed its supremacy in the municipal and senatorial elections held in September and October 2014. The power of the President was reaffirmed, following a very tense atmosphere, when it won the referendum of 25 October 2015 on a new Constitution. This allows him to run for a third term of office in 2016 (election has been brought forward to the first quarter). Given the concentration of power under his control and the underlying tension both socially and between communities, any sudden departure from the political stage of the current Head of State, 72, could lead to considerable instability.

In regional terms, links with Angola should gain strength as part of the joint management of an oil field, whilst relations with the Democratic Republic of Congo are likely to remain tense, as they have since the expulsion of large numbers of its citizens from Brazzaville in April 2014.